The Federal Reserve said it will buy $45 billion a month of Treasury securities starting in January, expanding its asset-purchase program, and for the first time linked the outlook for its main interest rate to unemployment and inflation.

Interest rates will stay low “at least as long”Ł as the jobless rate remains above 6.5 percent and if inflation “between one and two years ahead” is projected to be no more than 2.5 percent, the FOMC said in a statement. The committee roviews these thresholds as consistent with its earlier date- based guidance. It dropped its earlier pledge to hold interest rates near zero ÔÇťat least through mid-2015.

The latest move will follow the expiration at the end of this year of Operation Twist, in which the central bank each month has swapped about $45 billion in short-term Treasuries for an equal amount of long-term debt. That program kept the total size of the balance sheet unchanged, while the new purchases will expand the Fed’s holdings.

In a related article, the Fed announces “it has no idea how this economics thing works.”

I wonder which definition of inflation they are using? Since they gave up even trying to count the money supply, how can they know how much they are inflating it? If they are just going on consumer prices, they’re going to have a more and more difficult time finding cheap items to base their figures on.